Unemployment hits peak 'not seen in 20 years', Commission says

After five years of economic crisis and the return of a recession in 2012, unemployment is hitting peaks not seen for almost 20 years, according to a report by the European Commission published yesterday (8 January), which showed growing disparity between North and South Europe.

Unemployment rose to 11.8% in the eurozone in November, the highest rate since the euro currency was founded in 1999, according to the the 2012 edition of the Employment and Social Developments in Europe Review presented on Tuesday by László Andor, the EU's Employment and Social Affairs Commissioner.

Unemployment stood at 10.6% a year earlier. In the EU as a whole, the jobless rate was 10.7%, up from 10% in November 2011, breaking the 26 million mark, with 2 million more unemployed than in the previous year.

But the situation differs from country to country, with the North and the South of the eurozone diverging more than ever.

The North/South unemployment rate gap was 3.5 points in 2000 and fell to zero in 2007. It then widened to 7.5 points in 2011 in the aftermath of the financial and economic crisis, which hit southern eurozone countries hardest. Outside the eurozone the divergence, though also growing, is significantly smaller.

The biggest increase in unemployment over the past year took place in Greece, where unemployment soared to 26% in September, up by 7.1 percentage points over September 2011. The highest overall unemployment rate in the EU was in Spain, where 26.6% of the workforce was jobless in November, up 3.6 percentage points over last year.

The lowest unemployment rate was registered in Austria, at 4.5%. The rate in Luxembourg was 5.1%, and 5.4% in Germany.

Long-term exclusion risk

"The absence of tangible recovery has put under pressure household incomes in the majority of member states and increased the risk of long-term exclusion," the Commission said in a statement. "To prevent rising poverty and long-term exclusion from becoming entrenched, policies need to be tailored to specific country situations and population groups most at risk."

Statistics also show that that in some countries, especially in the Southern part of EU, the match between skills and jobs has worsened.

“2012 has been another very bad year for Europe in terms of unemployment and the deteriorating social situation”, Andor said. The Commissioner added that it was unlikely that Europe would see much improvement in 2013, unless it achieves greater progress on credibly resolving the euro crisis, finding resources for much needed investment, which in his words includes investment in people’s skills, employability and social inclusion, as well as making finance work for the real economy.

Andor stressed that more unemployed people means fewer tax revenues for EU governments, leading to less money available for spending on welfare.

Role of welfare and tax system design

In terms of their effectiveness at tackling poverty, the design of national welfare systems is as important as their size, the Commission said. Tax-benefit systems can significantly influence employment outcomes by particular features such as the provision of childcare services, which is a strong factor facilitating the take-up of jobs, particularly among women.

The design of the revenue side of welfare state plays an equally important role, the report says. Shifting the tax burden from labour to other sources, such as CO2 emissions or consumption and property, is seen as a boost to employment. The analysis finds that while there are no optimal solutions for tax shifts from an integrated employment and social policy point of view, an appropriate design of welfare systems increases the desirability of certain tax shifts.

According to the report, wages are not only a cost factor but also provide the income for people to buy goods and services. It warns that cutting wages might improve competitiveness but will also reduce domestic demand for the output of companies, potentially leading to job losses.

Employees’ share in the total income generated by the economy has fallen in Europe over the past decade, while polarisation between high and low income jobs has grown. A large pay gap between men and women persists, 16.4% on average in the EU in 2010, the report says.

Background

In the Employment Package adopted in April 2012, the European Commission proposed a new approach for employment policy, advancing a jobs-centred paradigm where labour is a most precious resource and productive employment a source of growth, rather than a delayed consequence of the recovery.

The Compact puts an emphasis on both tackling unemployment and addressing the social consequences of the crisis, referring to sections in the Employment Package on quality job-creation, structural reform towards dynamic labour markets, investment in human capital and improving multilateral surveillance of employment policies.

Employment and Social Affairs Commissioner László Andor called new unemployment rates released by Eurostat yesterday (2 April) “unacceptable” and “a tragedy for Europe”. The eurozone has hit the 12% mark for job-seekers, compared to 7.7% in the USA.

A new study by the European Trade Union Institute (ETUI) maps out the effects of the economic crisis on unemployment and inequality. It blames EU leaders, notably the European Commission’s push for austerity in early 2011 and the European Central Bank’s previously tight monetary policy, for the failure to spur a recovery.

Leading European think tanks have expressed doubt that the EU leaders' pledge to create jobs and growth will be successful, adding to a growing wave of criticism over the outcome of this week's EU summit.

US President Barack Obama said on Thursday (10 May) that Europe was still in a difficult place economically in part because it did not take some of the steps the United States did. These had included a large-scale fiscal stimulus programme and aggressive action by the Federal Reverve, the US central bank.

German Finance Minister Wolfgang Schäuble warned on Tuesday (28 May) that failure to win the battle against youth unemployment could tear Europe apart, and dropping the continent's welfare model in favour of tougher US standards would spark a revolution.

Portugal and Greece are interested in the same kind of support for lending to small business that Germany agreed with Spain last week, a spokeswoman for the German finance ministry said (8 June), but they will need a state financing body to qualify.

The number of jobless in the 17 eurozone countries has hit a new record in June, increasing pressure on the European Central Bank to find ways to help indebted states and spur growth, when it meets tomorrow (2 August).

Belgium became the first eurozone country formally to fall into recession in the second half of last year, data showed on Wednesday, paving the way for what is expected to be a tough contraction for the bloc as a whole in 2012.

The eurozone, China and Britain loosened monetary policy in the space of less than an hour yesterday (5 July), signalling a growing level of alarm about the world economy, although suggestions of coordinated action were played down.